Abstract

Measuring the contribution of financial intermediation services to Gross Domestic Product (GDP) is challenging. Agents within an economy that are primarily engaged in the activity of matching borrowers with lenders are termed as financial intermediaries within the System of National Accounts (SNA). The activity of financial intermediation is also considered to be a service output, provided to the other agents who are borrowers and lenders, which contributes to GDP. As occurs with typical service outputs, the charge for financial intermediation can be explicit through the levying of a commission or a fee. However, the majority of the charge is through financial institutions charging higher interest rates on loans made than what they pay on deposits held. Consequently interest flows within the national accounts framework are interlinked with measurements of output. The conceptual basis of interest flows has presented a number of long-standing measurement issues both in the New Zealand context and the development of standards internationally. The major challenge facing national accounts compilers is the partitioning of the relevant interest flows to derive a service component. This paper outlines the current and an alternative (best practice) approach of measuring interest flows in relation to the activities of financial intermediaries in New Zealand.